AMERICA ATTACKED: ECONOMIC AFTERMATH | JAMES FLANIGAN

Anti-Terror Plan Needs Economic Component

Americans who were dismayed and disgusted by the sight of young men in the Middle East cheering the attack on the United States may not realize they were looking at an embodiment of the economic underpinnings of terrorism.

Those mostly unemployed young men are part of the economic underdevelopment that plagues most countries in the Middle East, providing a breeding ground for terrorist groups and for virulent hatred of America.

The long campaign of military and diplomatic action that the U.S. is mounting against terrorism will focus on countries of the Middle East and on Afghanistan.

"But if there isn't an economic leg to that effort, it won't succeed," says Steven Spiegel, a professor of Middle East studies at UCLA.

European investors, while pledging support for the United States last week, stressed the need to address the Middle East's economic ills, which they saw as "root causes" of political unrest and terrorism.

What is the problem, what realistically can be done about it, and what should we understand about the Middle East as a new crusade begins?

The problem is that a vast region containing some 250 million people, which is strategic to the global economy because of its energy resources, is not a participant in the promise and development of the global economy.

The difficulty is made acute by surging population in most countries of the Middle East, where more than half the people are younger than 20.

Elsewhere, over recent decades, countries such as South Korea have developed industrial economies with rising living standards for their people.

But the Middle East, even the countries with oil riches, has stagnated. Iran, for example, with 62 million people, has annual economic output only one-fourth that of South Korea, which has 47 million people.

The story is similar for Egypt, Syria, Jordan, Algeria and others--some with natural resources, some without, but all with low living standards and a lack of investment and development.

The saddest case of all is Iraq, where dictatorial rule by Saddam Hussein and global sanctions following the 1991 Persian Gulf War have reduced a once-prospering country of educated men and women to abject poverty. Iraq's annual economic output has shrunk to only $496 per person.

Iraq has become not only a breeding ground for but also a participant in terrorism, according to U.S. officials identifying the hijackers in last week's attack.

Yet in the Middle East, autocratic government like that of Saddam Hussein is the rule, not the exception. And experts point to it as the leading cause of economic backwardness.

"Lack of democracy is the most important reason for lack of economic progress," says Muhammad Sahimi, an Iranian-born economist and professor of petroleum engineering at USC.

"Under the Shah and later under the mullahs, the rule by a small group led to corruption in Iran," Sahimi says. Also, governments maintain monopoly control over industries in most Middle Eastern countries, and that has held back development.

Other experts on the region agree that governments of one political party or one tribal group inevitably distribute favors to an inner circle, fomenting resentment and opposition among the groups left out.

That leads to conflict, which discourages investment. In a world in which global business is investing more in Asia and South America, Middle Eastern nations are nonparticipants.

A United Nations study of global investment coming out this week lists the only sizable investments for the region to be in petroleum-related projects in Saudi Arabia.

Lack of investment coupled with a population boom--Middle Eastern birthrates are double those in Europe, the U.S. and most Asian nations--is explosive, says Joseph Jabbra, professor of Middle Eastern studies at Loyola Marymount University.

Yet as long as the world is consuming oil, especially at recent prices, many Middle Eastern countries have capital to spare. But oil riches are used not to put young people to work but to distract the unemployed with hatred for the United States and for Israel.

Iran, for example, with 10% unemployment and vastly more underemployment, is a main supporter of Hezbollah guerrillas and the Palestinian Hamas organization fighting against Israel.

The Palestinian-Israeli conflict has consumed the Middle East for more than 50 years. Wealthy Arab states have supported the Palestinians--but at a distance. A skilled people, Palestinians supplied an educated work force for oil-rich Kuwait until 1991, when Kuwait expelled all Palestinians after they cheered Saddam Hussein's invasion. Other oil-rich states, such as Saudi Arabia, do not allow Palestinians even to enter their territory.

Can economic progress ever occur in such a conflicted area? Yes, assuredly it can. Lebanon, almost destroyed by conflict, still produces greater economic output per person than most of its neighbors. Israel, with an educated population and a modern economy, generates output 10 to 15 times that of many of its neighbors.